A number of factors have conspired to weigh down the West African gold space over the
past few years. The recent conflicts in Mali and Cote D’Ivoire have heightened the
security risk, while creeping nationalism in the form of higher royalties and/or taxes in
Ghana and Cote D’Ivoire has hindered investment. Rising costs for consumables such as
fuel/power/others, labor, and community development have driven higher cost structures
for West African operations. Kinross’ ongoing issues at Tasiast (Mauritania) after making
the high profile Red Back Mining acquisition have negatively impacted M&A in the
region. The net result has been a shift to a negative investor sentiment towards
companies with assets in West Africa. While the larger cap producers have been under
significant pressure, the valuations of developers in the region have been adversely
impacted to the point where they are trading at a discount to the discovery cost per
ounce of gold resource. We have highlighted seven gold development companies with
assets in West Africa that are trading with implied enterprise values of less than
US$10/oz of gold resource (Figure 3).
Figure 3: Selected gold development companies with assets in West Africa
Sym Sh o/s Price C$ Mkt. Cap Sum Oz Mkt Cap/oz EV/oz
Company Exch M 24-May-13 $M Au /co (M) AuEq C$ Au US$
Ampella Mining Ltd. AMX-A 248 $0.21 $51.8 3.25 15.94 8.31
Asanko Gold Inc. AKG-T 85.0 $2.62 $222.7 5.90 37.75 4.67
Channel Resources Ltd. CHU-V 119.3 $0.03 $3.0 1.15 2.59 2.60
Gryphon Minerals Ltd. GRY-A 400.5 $0.19 $77.7 4.90 15.86 8.16
Orezone Gold Corp. ORE-T 85.7 $0.65 $55.7 5.68 9.81 7.05
PMI Gold Corp. PMV-T 414.0 $0.38 $157.3 4.86 32.37 6.37
Volta Resources Inc. VTR-T 155.4 $0.22 $34.2 5.00 6.84 3.60
Source: Bloomberg, company reports, Canaccord Genuity
With the exception of Channel Resources, these companies have all completed economic
studies on multi-million ounces projects which have the potential to produce 100,000-
300,000 ounces of gold per year at cash costs in line with the average for current West
African producers. It is understandable that companies are reluctant to make
acquisitions in light of the recent post acquisition disappointments despite the drop in
equity valuations. That said, these companies control significant assets in jurisdictions
which have proven in the past to offer reliable permitting timelines with experienced
local talent pools. With these companies trading at a discount to their discovery cost per
ounce, we believe that the probability for opportunistic M&A is elevated for some West
African based assets.